Fertilizer prices to reflect rise in energy costs

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GM Staff

Fertilizer prices to reflect rise in energy costs

High energy prices are affecting the green industry by directly increasing the operating costs of equipment. Everyone has felt these increases and there appears to be little relief heading into the 2001 season. But, the industry also faces another threat from energy costs. The cost of fertilizer production is increasing with the costs of natural gas.

Petroleum prices have found some stable ground, albeit high ground, this fall and winter. However, fertilizer production depends on natural gas and The Fertilizer Institute (Washington D.C.) reports natural gas prices increased from $2.50 per MMbtu (million Btu) in January 2000 to over $10 per MMbtu last month. They have since declined, but only modestly.

While natural gas is used to produce many fertilizers, most of it spent on fertilizer production is used to produce nitrogen-containing ammonia. At 33.5 MMbtu to produce 1 ton of ammonia, the quadrupling of gas prices last year has caused natural gas to account for as much as a whopping 92 percent of the cost to produce 1 ton of ammonia. The increased production costs are forcing U.S. producers to choose between selling at a price below the market level or curtail production. Meanwhile, producers in other countries where natural gas is still cheap are expanding production and increasing exports to the U.S.

At this point, agriculture is at the greatest risk while the affect on the turf and ornamental market is less clear. Unlike agriculture, the turf and ornamental market often reformulates raw ammonium products. Therefore, reformulated supplies currently available may have been manufactured several months ago before the recent spike in gas prices. Additionally, the proportion of the cost of reformulated products accounted for by the raw fertilizer is relatively small. However, the cost of other (less processed) products, urea for example, will undoubtedly surge. And the Green Industry will certainly experience some price increases as the season goes into full swing in the next few months.

In fact, reports already suggest that this is happening. In a recent Professional Lawn Care Association of America (PLCAA) ProPoll, 86% of respondents said they had “experienced…problems ordering fertilizer supplies or found that supplies are not readily available.”

According to Bob Andrews, past president of PLCAA, “Some respondents said suppliers had backed out of already quoted prices. Others cited that suppliers were only willing to quote on product already on hand, but not those ordered for future delivery. Others said that only fertilizer with a high content of urea was in short supply but that anything else was readily available. Some others again said that any shortage had been offset by early ordering for 2001, which they believe the supplier will honor.